Lance Zimmerman: Value-added programs
February 17, 2011
Value-added programs are helping cattlemen capture more dollars per pound of calf raised; however, it can be difficult to know which market to focus on. Lance Zimmerman, an analyst with CattleFax, studied which options are best and presented his findings at the Pfizer Animal Health meeting in Brookings, SD, on Feb. 10. In his opening comments, Zimmerman offered some thoughts on the state of the industry.
“At the 2011 Cattle Industry Convention held in Colorado earlier this month, the message was for cattlemen to expand, expand, expand,” said Zimmerman. “Take caution to that advice. You can’t forget about profitability. Yes, it’s important to feed the world, but we also have to feed our own families.”
Referencing research done on value-added calf prices at Superior Livestock Auction (SLA), Zimmerman said the data is important because it indicates national market incentives for specific calf management.
“There is an evolving vertical coordination in the cow-calf sector,” explained Zimmerman. “Not ‘vertical integration’ like what we see in the poultry and pork industries, where there is retained ownership all the way through the process. It’s ‘vertical coordination,’ which means the packer is listening to the consumers and then sending the message to the feeder about what the consumer needs. The marketing segment has really influenced the different management practices in the cattle business.”
Furthermore, Zimmerman said that value-added management is integrated not just from the cow-calf sector to the packer, but in different ways, as well.
“Value-added management is integrated across genetics, health, nutrition and breeding programs, too,” added Zimmerman. “SLA started in 1987 with satellite auction markets. Today, it’s the largest livestock auction market. SLA partnered with Pfizer in 1994 to look at prices, sale dates, delivery dates, base weights, lot sizes, sex, weaning, vaccination programs, breeds, etc. As the auction grew, the number of analyzed traits increased to things like implant type, natural, non-hormone treated cattle, percentage of black hides and more.”
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Zimmerman analyzed these factors and from the results, he said there are key considerations to keep in mind when selling calves: Avoid unknown marketing risks. Guarantee load lots. Determine sellers and buyers from various locations and set management goals. Learn details about cattle, feed and vaccination programs. Learn the history of the cattle.
“Know that national market conditions don’t equal local conditions,” he explained. “Also note that costs and performance vary from ranch to ranch. Premiums can also change over time.”
So, what should producers focus on to capture these extra dollars? Zimmerman dissected the options and deciphered the results of his study.
“Throughout the 1980s, there were a lot of studies done to try and determine the value of a preconditioning program, but we failed to ask what the program consisted of,” said Zimmerman. “The price differential per hundredweight relative to non-vaccinated and non-weaned calves varies.”
Another consideration is natural market eligibility, which Zimmerman said only adds $0.26 per hundredweight (cwt.) more than simply marketing calves as non-implanted steers. However, these calves could also fall under the non-hormone treated cattle market, which can add $1.51/cwt. and can qualify if cattle are certified at the ranch beforehand.
“Look at what you’re doing with non-implanted calves,” recommended Zimmerman. “Invest some time in the paperwork if it’s economic and convenient to do so for your operation.”
He also said breed-influence can play a role on price received.
“English and English-cross calves brought, on average, $3.50/cwt. more relative to Brahman-influenced steers,” he said. “Continentals brought $4.05/cwt. more, with English-Continental cross coming in at $4.09/cwt. more. Black and black-white faced cattle brought $5.81/cwt. more and predominantly Black and/or Red Angus were bringing $6.55/cwt. more on average than Brahman-influenced calves.”
Zimmerman said that while breed plays a big role in receiving that extra buck at the sale barn, it’s even more critical for producers to describe their cattle well on the auction block.
“How are you describing your cattle?” he asked. “Every other year, our study showed that Angus-named cattle brought more than just black-hided cattle. How you market and describe your cattle can really have an impact on dollars left on the table for producers. Research shows buyers appear to be more responsive to seller claims. Small details can really have a significant impact on price. Even for age- and source-verified, sellers are getting $5-$7/cwt. back in premiums.”
Of course, quality will always be rewarded. He urged producers to focus on quality instead of trying to save a few dollars in the short-term.
“Where prices are right now, you don’t want to short change your reputation for a few dollars; it’s so important to maintain quality,” he stressed to producers in attendance. “Don’t skimp when buying a herd bull. The opportunity to change your position in this business is greater now than ever before.”
Zimmerman concluded that for low-cost producers, there are great opportunities to market weaning and vaccination programs at sale barns. All it takes is paying close attention to detail and marketing calves right to capture dollars in the value-added market.